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Asda is refusing to pay suppliers

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Posted on 21 April 2020

Another large retailer is reneging on its contractual obligations to pay for goods ordered as news reveals that the supermarket chain Asda is refusing to pay its clothing suppliers the full amount due for orders already placed.

In what either amounts to a major business bullying smaller ones, or a natural reaction to a downturn in demand - depending upon your perspective - according to reports Asda has cancelled around a quarter of its clothing orders, offering to pay 50% for the completed, cancelled orders with up to 60% for Bangladeshi suppliers.

On the face of it, it is extremely surprising that Asda is failing to pay its suppliers: as a supermarket chain owned by US retailing giant, Walmart, it is one of a handful of businesses experiencing unprecedented demand for its services so there can be no doubt it is one of the few cash rich businesses operating the UK at the moment.

While a right of entitlement to cancel and/or pay less can only be determined by a review of the contract, it is hard to reconcile this as an ordinary commercial practice allowed under a contract.

Asda has apparently offered to honour 75% of its orders for its clothing brands, as well as storing several of its products, and therefore it is perhaps being rather more generous than retailers such as New Look, Primark and Top Shop.

However, for those suppliers not being paid by Asda the reality is that such action could be the death knell for some businesses unless they take prompt action.

Whether Asda is assuming that those businesses will be taking advantage of the Government furlough scheme, and additional funding, and, therefore, could survive even if Asda paid them less, is impossible to tell.  What one can say is that clothing manufacturers supplying Asda are faced with a different decision from that faced by New Look’s suppliers.

Unquestionably Asda is not a struggling business unable to pay for goods ordered; it simply does not want to pay for the orders it has already placed.  Even cash-strapped businesses affected by Asda’s action would have alternatives to accepting those terms – if they are not being paid, is taking legal action to enforce the contract with Asda an option?

It is always sensible to take into consideration the potential damage to the business relationship in the long term. However, many businesses may take the view that Asda’s treatment of them, particularly at such an economically precarious moment, means they have no wish to preserve a long-term relationship.  If that is the case, one could assume they will pursue Asda for full payment of goods ordered.

As a result, we expect to see a run of cases by Asda’s suppliers seeking to enforce their contractual right to payment.

For any advice or assistance concerning this or other issues please do contact us.

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